Risk of missing talent opportunity
Giving access to labour markets to foreigners can help to address Malaysia’s problem of brain drain.
COMMENT
The biggest opportunity that South East Asia is at risk of missing when it launches the Asean Economic Community (AEC) in 2015 is liberalising its 285 million labour market to allow free movement of skilled labour to address acute shortages in growth sectors.
Most recent Asean Summit in April in Brunei Darussalam was largely silent on this important issue. Despite an encouraging slogan ‘Our People, Our Future Together’ strategic energies were consumed by efforts to find common ground on South China Sea disputes.
One step in the right direction was the signing of the Asean Mutual Recognition Arrangement (MRA) of Tourism Professionals and a fresh initiative to establish visa-free travel in Asean countries which could help business professionals to move around the region.
However these measures still lack the visionary boldness required to transform Asean’s labour market to meet its future skill shortages. A truly ‘People-Centred’ Asean appears to be about people within national boundaries rather than an integrated labour market.
Recent economic history shows this could prove to be a major policy error. The Eurozone economic crisis which is still playing out in Italy, France and Spain has shown that labour market rigidity is a major drag on future growth potential as it stifles creativity and productivity.
Closed professions in Greece such as pharmacies and transportation for instance have been identified by the IMF as the main structural reason for underperformance of its notoriously weak economy.
Italy has seen practically no real growth in more than a decade because of lack of labour competition within protected sectors despite its indisputable prowess in design, engineering and manufacturing. France faces very similar problems.
Meanwhile Germany is a shining positive example of how labour flexibility and open borders can drive productivity growth without sacrificing commitment to social responsibility. Germany is the only country today in Europe that is capable of delivering growth even when the rest of Eurozone is still in recession thanks to competitiveness of its labour force.
Though Asean has said it does not want to adopt the European Union integration model it could take away a few valuable lessons from the current problems in Europe.
One of the main achievements of the EU in the 2000s was to remove obstacles to talent flow which allowed many bright and young professionals from countries such as Poland and Hungary to migrate to stagnating economies in Italy, Spain and France.
Although Poland for instance initially experienced brain drain, after a few years many were returning home with new skills and savings to tap opportunities in their own country.
During the last recession Poland was in fact one of the few countries in the EU that was able to post growth because of strong domestic consumption underpinned by returning nationals.
Addressing Malaysia’s brain drain
The main takeaway from this story is that free flow of labour allows migrants to explore opportunities both at home and abroad and helps to stabilize countries during recessions.
The main weakness in the EU was that the labour reform did not go far enough and several states encouraged an entitlement culture based on a system of unsustainable benefits that led to a full blown debt crisis in 2009.
While at first it may seem counter-intuitive, giving access to labour markets to foreigners can also help to address Malaysia’s problem of brain drain.
Research from other emerging countries shows that a more vibrant and international labour market tends to attract young professionals back to their home country.
A survey done by the World Bank back in 2011 showed that 40% of Malaysians with tertiary education who have moved abroad regard skill flow and labour competition as an important factor in returning to their country.
Allowing skilled foreigners to compete for top jobs changes the whole perception about upward mobility within a labour market.
If there is no discrimination against foreign workers it must mean the corporate world is genuinely interested in finding talent as opposed to simply protecting their own.
This is particularly true in talent-hungry ‘globalised’ sectors such as finance, education, health as well as research and innovation that intrinsically require a free flow of ideas across borders to be successful.
It is hugely important in the booming aviation sector in Asean which requires a borderless approach to professional exchange to address phenomenal demand we have seen in the last five years.
Malaysia is arguably already ahead of its Asean peers in moving towards this goal with initiatives such as TalentCorp helping to attract relevant skills. However delivered at a national level they do not go far enough to realize the full value of regional growth.
As a net brain drain middle income country, it is easier for Malaysia to see the value in flexibility especially as it aspires to become an Advanced Economy by 2020.
The questions is how to persuade other Asean peers such as Indonesia the value of free movement in skilled labour?
One of the most compelling arguments is Foreign Direct Investment (FDI). FDI, flexible labour markets and access to talent pool nearly always go hand in hand.
Lack of skilled labour is the most often cited reason not to invest in a particular country.
It is one of the factors that persuaded Research In Motion (RIM), producer of the Blackberry smart mobile phone to locate its factory in Malaysia rather Indonesia despite Indonesia being the last big growth market for Blackberry in the world.
Supply-demand gap
European experience shows protecting local workers goes against the interest of their long term prosperity because it leads to loss of competitiveness.
In a globalised world, jobs and companies simply move to other regions that offer better access to specific skills.
There is a big opportunity for Malaysia and Indonesia to work together to attract large multinationals into Asean instead of competing against each other.
For instance Indonesia is currently experiencing acute shortages in labour supply in nearly every sector of its economy.
A sharp case in point is an acute shortage of engineers due to mega infrastructure and construction projects ranging from airports, housing, roads, water and power generations.
Chairman of Engineering Association in Jakarta said recently that Indonesia requires 2.4 million new engineers next five years. Its education system is only capable of delivering 800,000. A gap of 1.6m jobs is impossible to fill unless you rely on imported skilled labour.
As it happens the Philippines next door enjoys an excess pool of highly skilled engineers. Malaysia has the capacity through its education system to help Indonesia educate and train additional few to meet this explosive demand.
However due to labour market restrictions today the private sector companies cannot address this structural supply-demand gap.
The links between Malaysia and Indonesia universities are improving, however without a strategic push from above, remain inadequate to address this regional challenge.
Asean decision makers have not yet fully taken on board how urgent this situation has become. It seems as one private sector participant observed “until this problems will hit them hard they will not respond”.
There is therefore a major risk that Asean will miss an opportunity to unleash its economic potential by preventing free flow of skilled labour when it launches AEC in 2015.
It is in Malaysia’s best interest to use its strategic leverage to put this issue forward as one of the main catalysts for economic transformation in the region that could indeed be true to the slogan ‘Our People, Our Future Together’.
Paulius Kuncinas is the Regional Editor, Asia at Oxford Business Group
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